Calculating taxes and withholding for employees is not always fun. The task can become difficult at times. However, whether you have a small business or a large company, this task is very critical as it is your responsibility to take care of both employees’ payrolls and taxes. But what are the different taxes and how do you compute them?
Payroll Tax in a Nutshell
A payroll tax is the amount you have to withhold from an employee’s salary to pay for applicable federal, state, and local taxes. Federal Insurance Contributions Act taxes are paid in equal parts by both the employer and employee. Federal Unemployment Tax Act and Federal Income Tax, on the other hand, are paid in full by the employer (FUTA), and employee (FIT). Both state and local taxes have certain regulations depending on which state or specific town that the business operates in.
When you are able to correctly compute your taxes, you can maintain an accurate payroll. Use the following tips to make it easier:
Classify Workers Accordingly
Employees and independent contractors are not the same when it comes to computing payrolls. With employees, you must account for taxes, overtime wages, and comply with the minimum wage laws. Contractors are responsible for paying their own taxes and their rates are negotiable depending on the project. In other words, independent contractors should not be included in your payroll.
Manual payroll system accounts for most errors in the payroll process. For this reason, a lot of businesses are turning to online payroll software that correctly calculates pay and taxes. The software is programmed to be accurate so that there will be no room for mistakes.
Just like an automated payroll, accurate tracking of attendance and how much time employees have been working can be done using software for online time tracking. This is an efficient and effective solution especially for employees who are paid by the hour.
Conduct Regular Payroll Audits and Updates
Auditing payroll information will help verify accurate records. Either a quarterly or an annual audit will do especially when you are using an automated payroll system.
It is also recommended to keep up with government payroll updates. There are always new laws about taxes, and rates and minimum wages change almost every year. You may seek out new information from local business organizations or from government notices.
Updating yourself minimizes errors in payroll and tax computations. It may be a tedious task but doing so will help save a lot of time and money caused by erroneous computations.
Being diligent on calculating payroll taxes ensures lesser problems in the long run. It helps that there are technology advancements that automatically compute the required tax payments. Automating the process is an easy solution that will work for you if you want to manage the business payroll on your own.
Compute accurate taxes and keep an accurate payroll to keep your employees happy. Do not hesitate to contact TRAXPayroll for more information about automated time tracking and payroll systems.